Down payment requirements for securing a Small Business Administration(SBA) loan vary by lender, loan type, and borrower qualifications. In general, lenders ask for a minimum down payment of 10% to 30% for startups, although some SBA 504 loan programs do not require any down payment.
The SBA offers loan programs to help small business owners cover various expenses.
Even though the SBA sets some general rules such as interest rate limits and loan terms, you still apply through SBA-approved partner lenders that may require a higher down payment based on your specific circumstances, the loan type, your business's cash flow, or the collateral's value, among many other factors.
For SBA7(a) loans, down payments usually start at 10% but can increase to 30% for new businesses and startups. These loans can reach up to $5,000,000 and cover expenses like inventory and commercial real estate.
The maximum interest rate is the current prime plus 6.5%, capped at 15%. Repayment terms extend from 10 to 25 years, depending on the loan's purpose.
The SBA assesses loan applications using the FICO Small Business Scoring Service (SBSS). A minimum score of 155 is required for loans up to $350,000 asof February 5, 2024. This score considers various factors, including credit history and financial data.
CAP Lines — part of the 7(a) program — require 10% to 30% down payments. These lines of credit offer up to $5,000,000 with terms of up to 10 years. Interest rates are capped similarly to 7(a) loans. CAP Lines supports various needs, from managing seasonal revenue fluctuations to financing specific contract-related expenses.
Business owners applying for SBA 504 loans/CDC loans should prepare for a minimum 10% down payment. Note that startups may need up to 20%. These loans are designed to help borrowers purchase significant fixed assets.
They offer repayment terms of up to 25 years for real estate and ten years for equipment. A typical loan structure includes a 10% borrower downpayment, 40% from a CDC, and 50% from a third-party lender.
Yes. Some SBA loan programs do not require a down payment or collateral because they are lifelines for business owners needing more financial resources. However, because there is no down payment, lenders are usually stricter on other requirements. You may be asked to provide a solid business plan and detailed financial statements.
SBA micro loans provide small loans of up to $50,000 without requiring a down payment. This program aims to support business owners in under served communities, particularly businesses owned by women and minorities. Applicants must prepare comprehensive business plans with detailed cash flow projections for the upcoming year.
These loans can be used for various purposes, such as working capital, inventory, purchasing furniture or equipment, etc. The maximum term is six years. Interest rates are negotiated between the borrower and the lender and typically range from 8% to 13%.
Notably, some micro lenders do not require a minimum credit score, making these micro loans suitable for business owners who need an established credit history.
The SBA Express Loan program is designed for those who need funds quickly. The approval process is fast — funding is usually available within 36hours. Loans below $50,000 do not typically require collateral or a downpayment. Interest rates are capped at the prime rate plus 6.5%, mirroring SBA7(a) loan rates.
SBA disaster loans provide crucial financial support to businesses in officially declared disaster zones during times of crisis. For example, the Economic Injury Disaster Loan (EIDL) program is designed for companies that have endured economic harm due to disasters/ Eligibility extends to natural events like hurricanes and wildfires.
EIDLs can offer up to $2,000,000 at a 4% interest rate. Repayment terms are up to 30 years, and funding can be used to cover essential operating expenses such as working capital, rent, healthcare benefits, etc.
Additionally, businesses can apply for up to $2,000,000 through physical damage loans to repair or replace property damaged by disasters. The maximum interest rate is 8%. The program also includes mitigation assistance for disaster prevention improvements.
Business owners with lower credit scores (in the high 500s) may qualify for certain disaster loans, although loans above $25,000 under the EIDL program might require collateral.
There are various ways to secure the funds you need to put together an SBA loan down payment. Before proceeding, carefully assess the potential risks and benefits to choose the best path forward for your business and financial health.
The risk is that you may lose your retirement savings if the business fails. It's also a potentially expensive option because fees are involved in setting up and managing a ROBS plan.
Are you planning to apply for an SBA 7(a) loan for commercial property purposes? Capital Investors Direct can help.
